UAE bank compliance is a rigid obstacle

Nima Abu Wardeh examines the struggles the self-employed can face in the UAE if they want to release equity from a home.

Illustration by Gary Clement for The National

What does a self-employed debt-free person need to do in this town to release equity from a fully paid-up property? Well, if your company doesn't have at least Dh1.3 million coming in over the course of the year, then you might as well not bother trying.
Imagine this is you:
You have zero debt, you have set yourself up so that you are self-sponsored - in other words you provide your own employment visa via a limited liability company registered in a free-zone - you work in spurts because you want to take time off to travel, or be available for school holidays, or perhaps demand for what you do is seasonal.
The money you make when you do work sees you through the whole of the year. This means that your income is not a consistent amount, but averages out to, say, Dh75,000 a month. With no employer perks, this is money that will pay for the whole of your life - including rent, school fees, time off when you're away or ill and so on.
You are financially responsible and accountable and have saved up and made a couple of investments that also bring in money.
One of which is a property that you own outright and has tenants.
You have minimal work-related overheads because you are a consultant or trainer. You have an assistant who works part-time for you. You are part of a business centre and have no lockable office. You don't even have a landline.
You believe you have cracked the code for a great life: you're your own boss, you have chunks of time off, and your finances are rock solid.
Then one day you decide you want to release some of the equity from the property to invest in something.
This is where you discover, to your amusement and distress, that you are not considered worthy of credit. Or should that be debt?
This is exactly what happened to someone I know well.
It turns out that banks in the UAE won't entertain people who own their own companies if the company doesn't have a turnover of at least Dh1.3 million.
This is why:
The banks only consider a percentage of bank credits - ie a portion of what your company brings in - to be "profit" and in lieu of earnings or salary.
They look at around 20 per cent of what the company brings in, and if this doesn't fit their "debt to service" ratio calculation, then you have no chance. Even if all the money, minus the licence and admin fees, is yours to pocket.
In other words, your company brings in Dh900,000 a year. Say your earnings after all outgoings is Dh500,000 per annum, the banks only consider Dh180,000 to be your income. And you can see how that translates into a monthly equivalent and why they won't consider this to be enough to lend against.
There is another option, by the way: instead of audited accounts that show less than Dh1m income over a year, you can opt to share six months' income as the basis of your mortgage request. But, what they're looking for is a steady income of Dh75,000 every month over the six months. They do not want spikes and troughs - they want a steady drip, drip of roughly that amount.
This is tricky for the self-employed, because being paid does not tally with when work is actually done. Sometimes it's way before if you're lucky, or way after - with much chasing. And so a specific, consistent amount coming in isn't reasonable.
The disconnect between compliance and how banks operate, versus how people work, live, set up companies and earn is astounding.
The takeaway seems to be that banks like you if you are employed and work in a way that they, the people who are ticking the boxes, and those who came up with them in the first place, relate to. They don't like "out of the box".
So the bottom line is that even if you are in compliance with the laws of the land and subscribe to the universe of paperless, electronic virtual contracts, delivery and work, you will struggle to get a mortgage if you're not bringing in that magical Dh1.3m.
It appears that the quest for compliance has done away with common sense.
It's time to reclaim our ability to process information and come up with reasonable, logical decisions.
My message this week is this: of course there is a need to verify information and mitigate risk. But when it works against the very function and purpose of a bank, then something is seriously amiss. Who's going to fix this?
Nima Abu Wardeh is the founder of the personal finance website cashy.me. You can reach her at [e-mail]
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